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December 16, 2012

Top 10 Forex Events Outlook: Dec. 17-21

Dec. 16, 2012 (Allthingsforex.com) – The Japanese election and the
Bank of Japan monetary policy meeting will place the yen in the center
stage in the week ahead as traders react to the potential change in the
political landscape of the world’s third-largest economy and await the
next move by the Japanese central bank.

In preparation for the new trading week, here is a list of the Top 10
spotlight economic events that will move the markets around the globe.

1. JPY- Japan Parliamentary Election, Sun., Dec. 16, all day event.

Voters in Japan will take to the polls to elect 480 members of the
Lower House of the Parliament, who will be given the task to form a new
government. All of the latest polls forecast a majority win for the
opposition- the Liberal Democratic Party and its leader, Shinzo Abe, who
will be the most likely candidate to become the next Prime Minister.
Mr. Abe has been very vocal about his plans for more aggressive monetary
policy easing, weaker yen, targeting 2% inflation, and other methods to
fight deflation and to spur economic growth. The yen has been pushed
lower ahead of the election on expectations that the newly elected
government will implement these measures and could remain under pressure
if the election delivers the anticipated change in Japan’s political
landscape.

Inflationary pressures in the U.K. are forecast to subside to 2.6%
y/y in November from 2.7% y/y in October. Lower inflation should make
the Bank of England policy makers more comfortable if they need to
consider an expansion of the bank’s Asset Purchase Program in 2013.

Exporters in Japan are expected to continue to feel the negative
impact of the strong yen and the weaker demand from other countries with
the trade deficit forecast to widen by over 800 billion yen in November
compared with 620 billion in October. The alarming trend of rising
trade deficit could prompt the Bank of Japan to offer additional easing
at their meeting later in the week. Such expectations should weigh on
the yen in the days leading to the Bank of Japan’s monetary policy
announcement.

Despite of the fact that the Bank of England did not expand the size
of its Asset Purchase Program, a dovish quarterly inflation and economic
outlook report disproved expectations that the bank has reached the end
of its quantitative easing road. The minutes would probably confirm
that policy makers did not think that a change in monetary policy in
December was necessary. However, this doesn’t mean that the Monetary
Policy Committee is not standing ready to expand the size of its QE
operations if economic conditions deteriorate. The GBP could see
pressures mounting, especially if the minutes remind the markets that
the Bank of England’s QE door is wide open.

The first report in the weekly housing data sequence is forecast to
show builders breaking ground on 875K units in November, less than the
reading of 894K in October, while building permits inch slightly higher
to 870K in November from 868K in October.

Only a few days after an election that could result in a new
government keen on forcing its central bank into aggressive monetary
policy easing, the Bank of Japan policy makers will be likely to feel
the pressure to do more. With an economy on the brink of another
recession, the Bank of Japan once again finds itself with the difficult
task to keep the yen weak and to jump-start activity in the world’s
third largest economy. A “shock and awe” announcement of another 15 to
20 trillion yen of QE should give further impetus to the recent decline
of the yen. On the other hand, we could see unwinding of short yen
positions if the Bank of Japan decides to opt for a small QE expansion
or if it simply sits on the sidelines in December.

8. USD- U.S. GDP- Gross Domestic Product, the main measure of economic activity and growth in the world’s largest economy, Thurs., Dec. 20, 8:30 am, ET.

Another upward revision is expected for the final reading of the Q3
GDP with the U.S. economy forecast to grow at a faster pace by 2.8% q/a
from a previous estimate of 2.7% q/a. Stronger U.S. economic growth,
coupled with the recent QE expansion by the Fed and possibly one by the
Bank of Japan, could boost investor sentiment, risk appetite and the
higher-yielding currencies.

9. USD- U.S. Existing Home Sales, the main gauge
of the condition of the U.S. housing market measuring the number of
closed sales of previously constructed homes, condominiums and co-ops,
Thurs., Dec. 20, 10:00 am, ET.

As a potential new sign of a housing market recovery, sales of
existing homes in the U.S. are forecast to increase to 4.84 million in
November, compared with 4.79 million in October.

Growth in the U.K. in Q3 2012 is forecast to be revised lower to 0.9%
q/q from the preliminary estimates of 1.0% q/q. Following three
consecutive quarters of contraction, the economy has returned to growth
but the report could weigh on the GBP if it increases concerns that the
U.K. recovery may be taking a wrong turn, forcing the Bank of England
into more easing.